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Hartford Provision Co. v. United States

decided: April 17, 1978.


Appeal from a judgment of the United States District Court for the District of Connecticut, Newman, J., holding plaintiff's attachment lien prior to government tax lien and ordering return of attached funds seized by the Government.

Mansfield and Van Graafeiland, Circuit Judges, and Dooling,*fn* District Judge. Mansfield, Circuit Judge, dissenting.

Author: Van Graafeiland


In United States v. Security Trust & Savings Bank, 340 U.S. 47, 95 L. Ed. 53, 71 S. Ct. 111 (1950), the Supreme Court held that a United States tax lien was prior in right to an earlier recorded attachment lien where the attaching creditor's claim had not yet proceeded to judgment. The court said that "numerous contingencies might arise that would prevent the attachment lien from ever becoming perfected by a judgment awarded and recorded." Id. at 50. The Internal Revenue Service now contends that a tax lien, recorded after judgment is secured by an attaching creditor in the Connecticut courts, is prior to that of the judgment creditor if a writ of execution has not yet been served on the judgment debtor. Judge Newman, of the United States District Court for the District of Connecticut, rejected this contention herein in an unreported opinion. We affirm.

Priority of liens under 26 U.S.C. § 6323 is a matter of federal law. PPG Industries, Inc. v. Hartford Fire Insurance Co., 531 F.2d 58, 61 (2d Cir. 1976). That section provides in part that the government's lien for unpaid taxes "shall not be valid as against any . . . judgment lien creditor until notice thereof . . . has been filed by the Secretary or his delegate." § 6323(a). Although "judgment lien creditor" is not defined in the statute, it is defined in Treas. Reg. § 301.6323(h)-1(g) as a "person who has obtained a valid judgment . . . for the recovery of . . . a certain sum of money . . . who has perfected a lien under the judgment on the property involved." The regulation then provides:

A judgment lien is not perfected until the identity of the lienor, the property subject to the lien, and the amount of the lien are established. Accordingly, a judgment lien does not include an attachment or garnishment lien until the lien has ripened into judgment, even though under local law the lien of the judgment relates back to an earlier date.*fn1

In determining for federal tax purposes whether a judgment creditor's lien is perfected or choate, we look first to the local law setting forth the lien procedure and its legal consequences. However, we then determine under federal law the "actual legal effect" of the lien whose priority is in question. United States v. Waddill, Holland & Flinn, Inc., 323 U.S. 353, 356-57, 89 L. Ed. 294, 65 S. Ct. 304 (1945); United States v. Acri, 348 U.S. 211, 213, 99 L. Ed. 264, 75 S. Ct. 239 (1955). Under either standard, appellee's lien was prior to that of the government.

In Connecticut, a plaintiff suing for a money judgment may in certain cases attach the defendant's real or personal property at the outset of the litigation,. Conn.Gen.Stat.Ann. § 52-279 (Supp. 1977), or during its course by way of prejudgment remedy, §§ 52-278a-m (Supp. 1977). This procedure permits the plaintiff to obtain security for the satisfaction of any judgment which he may finally recover. Black Watch Farms, Inc. v. Dick, 323 F. Supp. 100, 101 (D.Conn. 1971); Atlas Garage and Custom Builders, Inc. v. Hurley, 167 Conn. 248, 251, 355 A.2d 286 (1974); Coit v. Sistare, 85 Conn. 573, 578, 84 A. 119 (1912); Morgan v. New York National Building and Loan Association, 73 Conn. 151, 152, 46 A. 877 (1900).*fn2 The attached estate is held to respond to the final judgment or decree. See § 52-281 (repealed 1976); Allen v. Adams, 17 Conn. 67, 77 (1845). See also § 52-278i (Supp. 1977). When the judgment is obtained, the attached property becomes subject to a lien as specific and binding as a mortgage lien. Carter v. Champion, 8 Conn. 549, 559 (1831). The judgment's effect on an attachment is to "establish the validity and determine the amount of the claim, and to preserve the lien under said attachment . . . ." Central Trust Co. v. Worcester Cycle Mfg. Co., 114 F. 659, 665 (C.C.D.Conn. 1902).*fn3

In order to accomplish its purpose, the attachment must continue in effect for a period of time following the entry of judgment. Beardsley v. Beecher, 47 Conn. 408, 414 (1879). In Connecticut, the period is sixty days.*fn4 Section 52-328 provides in part that "no estate which has been attached shall be held to respond to the judgment . . . unless the judgment creditor takes out an execution and has it levied on the personal estate attached . . . within sixty days after final judgment . . . ."

It is the contention of the government that an attachment lien is not perfected within the meaning of Treas.Reg. § 301.6323(h)-1(g) until execution is issued under the judgment. In support of this argument, the government relies on a quote from Bradbury v. Wodjenski, 159 Conn. 366, 370, 269 A.2d 271 (1970):

A judgment creditor, in order to perfect an attachment or garnishment made prior to judgment on his claim, must take out an execution and have it levied on the real or personal estate attached or have demand made on the garnishee within sixty days after final judgment.

We are satisfied, after a careful reading of that case, that the term "perfected" as used therein has a different meaning than it has under Treas.Reg. § 301.6323(h)-1(g). This is demonstrated by the Connecticut Supreme Court's succeeding remarks in the same case:

If not thus perfected, "any lien created by the attachment on this property . . . continued for sixty days after the judgment, and no longer." Sanford v. Pond, 37 Conn. 588, 594.

Asco Supply obtained a judgment on its claim on August 2, 1966. By failing, however, to have demand made on the garnishees at any time subsequent to that judgment, let alone within the sixty-day period prescribed by § 52-328, Asco allowed any lien on ...

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